Lending Club Removes Data Fields from Loan History and the API

In a surprise announcement yesterday Lending Club sent notice that it has decided to make some changes to the data available to investors. Anyone who uses the API received this email yesterday:

Dear Investor,

Today, we have implemented some changes across the Lending Club platform that are reflected in some of the downloadable files, and may impact some of your API programming to the degree you reference these fields. Specifically, we have standardized date references and have removed some fields from the files relating to credit attributes. You may read more on these changes at this page in the Knowledge Base.

This announcement came completely out of the blue and will certainly impact many investors who use the API to buy notes on the Lending Club platform. Given the fact that this data has also been removed from the data download of the loan history it will also impact analysis that investors have done.

Summary of These Changes

The data download has gone from exactly 100 fields down to 56 – the list of the deleted fields is available in the Knowledge Base.

These same fields have been removed from the API so any credit models or filters built on these 44 fields will soon no longer work.

Date fields are now in a Month-Year format rather than a specific date – you will no longer know the exact date loans were issued.

Policy Code 2 loans are now no longer available in the data download – this was not mentioned in this change but they are now clearly missing from the download.

So, we have a number of data fields no longer available and a large number of loans that have completely disappeared from public view. But it is the missing data fields that has caused the most concern from what I have been hearing over the past couple of days.

There are many large investors who have built credit models based on these additional data fields. There are also many small investors who have been using these data fields on Nickel Steamroller to create filters to invest through the API. In both instances changes will have to be made to continue investing.

In my own company, Lend Academy Investments, we have a fund that uses an advanced credit model to choose loans and when we spoke with our analyst today he told us that the model would have to be completely redone. There are many other large investors in the same boat.

The Thinking Behind the Changes

I reached out to Lending Club immediately when I heard this news but as I expected they had no comment. But I did some digging and sources tell me there were two reasons behind these changes. One, Lending Club wanted a level playing field between retail and sophisticated investors so that every investor had the same dataset in order to make investment decisions. Two, they did not want to make such a full dataset available to their competition.

I am not buying the first reason. If you really wanted to make the same dataset available to all investors they could have simply increased the number of fields available in the web interface. Having a simple Advanced button bringing up a new window with these fields would have been a far more equitable solution in my opinion.

Which leaves us with the second reason. Certainly, Lending Club, as a soon to be public company, needs to make decisions in the best interests of their shareholders. So this maybe the primary reason for the changes. Indeed, I have heard from many startups in the past who have said they have used the Lending Club or Prosper data to help build their credit scorecard. But I have also heard the Lending Club management talk about how sophisticated their model is now and how difficult it would be for any startup to create something similar from scratch.

My Take: Reduced Transparency is Bad for the Industry

It is pretty obvious by now that I don’t like these changes. For quite some time now Lending Club has been reducing the amount of transparency for investors. Now, some changes I completely understood such as removing the Q&A with borrowers and even the removal of loan descriptions. But removing data that investors have been using to make investment decisions is a step too far in my opinion.

I think Lending Club need to ask themselves if they are a true marketplace connecting borrowers and investors in a transparent fashion or whether they are more of a loan origination platform that makes products available to investors. They are certainly moving more towards the latter, I think, and that is a shame for everyone.

Now, anyone who has been around here a while will know I have been and continue to be a big supporter of Lending Club. But I also want them to know that these changes are not welcomed by many in our community. There has been a lot of negative talk about this change on the Lend Academy Forum and for once I agree with much of the negative sentiment. I just hope this trend of reduced transparency doesn’t continue and eventually investors are left with little or no information on borrowers.

The Importance of Dialogue

We will be adapting to these changes and will continue investing in Lending Club as I imagine most investors will. But I would like Lending Club to begin a dialogue with the community on changes like this. There are many people now, myself included, who make their living from this industry. And I would like to see Lending Club become more of a collaborative player here and think of themselves as a part of a broader ecosystem.

No one I have spoken to in the last 24 hours had any idea this change was coming. And regardless of the change that is not good for a collaborative and healthy ecosystem. Now, Lending Club in a quiet period right now so it may be understandable in this instance. But I hope this is the last time the ecosystem is blindsided by a change from Lending Club.

Great perspective Peter. In my mind, there are two things happening here. The first is what happened, and the second is how it happened.

What happened was a move away from transparency, a disempowering of credit modeling and filtering, and an equaling of the playing field. I don’t care too much about filtering (I assumed it was going away anyways), but I do value the equal playing field this brings to everyday retail investors who were getting to bottom 90% of each vintage. Now it’ll be 95%.

However, I care much more about the issue of their transparency, and in this way I’m really surprised by what just happened. The fact is this: Lending Club is not a company with a 20 year positive track record. They are a new player in American finance that *needs the public’s trust*, and cloaking 50% of their open data is not good in that regard. How can we publicly trumpet this company if we have no ability to independently validate it with our own math?

And how this happened is also an issue. As you pointed out, this was a complete bomb dropped on many people who make a living in this industry. Would it have been so hard for Lending Club to have issued a warm blog post saying, “Hey, we thought these credit variables we released in 2012 were a good thing, but it turns out that isn’t the case.” I think they would have had backlash, but it would have been on their terms rather than off them. This is a huge failure in PR.

This sentence sums up my feelings really well: “I would like to see Lending Club become more of a collaborative player here and think of themselves as a part of a broader ecosystem.”

Thanks Simon. I think the underlying message here, something I didn’t mention in the post, is that Lending Club don’t want credit models choosing loans. Or even filters for that matter. They want people to buy their underwriting and there to be no alpha generated by any kind of loan selection within each grade. I think that is unrealistic but that is the direction I believe they are heading.

In January, all credit data will be removed and replaced with an avatar. Interest rates will no longer be posted, but if the avatar appears to be smiling, investors are to assume that this is a very creditworthy borrower. A less smiley avatar means a less creditworthy borrower.

In March, ‘manual’ lending will go away and be replaced by ‘mandatory’ lending whereby LC simply debits your account to purchase fractions of loans regardless of whether they meet any criteria that you may have set forth. You will be paid back in a lump sum at the end of the loan period, even if the loan was paid off early. In the interim, LC will reinvest the proceeds for its own benefit.

As I’ve mentioned in another context, most 3rd party sites–which make up the so-called “ecosystem”–are just derivatives on something LC created. As an average non-accredited retail investor, I view the ecosystem as mostly adding a layer of fees to provide services of questionable value (speed, extra filtering, etc) that in some cases attempts to advantage certain investors at the expense of the rest. My bet is that the vast majority will fail to outperform a simple filter or investment approach, which has been shown again and again in all types of markets.

I know this opinion will annoy many users, especially the active crowd on this site or those who profit from LC’s product, but personally I’m not sure why LC owes derivative businesses anything. I’m for any move that helps LC ensure a level playing field for retail investors, and as Peter said this change mostly impacts very large investors (and those that service them). Is the negativity here really about transparency? Or is it just about money and the fear that a derivative player won’t be able to grab a slice of the pie?

Every industry has an ecosystem that adds features to offerings of the main players in the space. While they may not owe the ecosystem anything if they want a healthy industry that is well poised for future growth then doing things to hold back the industry is counter productive in my opinion.

Hippo387, I count myself as part of the ecosystem. I would argue it was sites like NSR that took LCs public data, demonstrated it works, and gave investors the confidence to invest, gave life to the new industry. Many sales reps from both companies refer people to our site when they think it’s too good to be true. We’re an unbiased 3rd party industry watchdog. In this case I think the ecosystem adds tremendous value.

Part of what makes NSR special the fact we allow investors to slice and dice the data anyway they want. We believe in the asset class and the feel more information is better than little. Now LC investing has been reduced to driving looking through the rear view mirror – with quarterly updates, policy codes, removed credit elements, redacted zip codes, dates changed to MM/YYYY format. It really blurs the data. Perhaps these 3rd party ecosystem will become even more important now that data is so constricted.

As for your comment about simple filters – I won’t argue – but the fact is a simple filter can outperform the index. A complex one, maybe a lot. The point is there are, and will always be inefficiencies in risk models so there will always be a place for the ecosystem to thrive. It’s the reason the whole world isn’t in vanguard index funds – they think they can do better. Some do, most won’t.

As for leveling the playing field. That may have been the intention, but then why remove the actual issue dates? It seems odd, as it has nothing to do with performance. I think there are more factors at play here than simply leveling the playing field. Probably not nefarious, just related to the IPO or the competition is starting to heat up.

Michael / Peter — good points, and I don’t begrudge anyone’s business pursuits. But that is part of the reality here — you both have financial interests at stake in this case while the vast majority of retail investors do not. (Disclosure: I’m a non-accredited investor, but have put a fair amount of money into P2P.) So it’s natural that some of us don’t share your indignation. That said, I very much appreciate the “watchdog” aspect of what you do, I’ve personally kept up on industry news through your sites.

I agree with Hippo. As LC’s credit scoring improves, it will get harder to outperform. I think we’re already at the point where third-party activity should be directed to the secondary market. Over there the main two things to watch are just credit score trend and payment history. I don’t follow the third-parties closely – which have implemented automation for Folio?

This is a good point Flyp. The alpha gained for credit scoring or filtering has reduced over the years. The underwriting is clearly better than it was two or three years ago. And maybe you are right – Folio is the place to be today if you are looking for alpha. Certainly some people on the Lend Academy Forum believe that.

Lending Club’s data transparency has given investors the confidence to invest in marketplace loans. Now that Lending Club is the dominant player it has been systematically cutting back on its data transparency by delaying the loan data download from weekly to quarterly and by removing dozens of credit related fields. Apparently, Lending Club believes that at this point their dominance is unassailable, giving them a free hand to reduce transparency.

In addition to removing credit fields, Lending Club also changed all dates to be month/year format (masking day of month). I use issue_d and last_pymnt_d in the calculation of loan charge-off and prepay cohort curves to help me compare the performance of my notes vs. the overall population. Now these curves will be less accurate than what Lending Club can generate itself. Lending Club is not only degrading filtering, but also the ability to benchmark performance.

On 10/31 Lending Club significantly reduced the interest rates on most of its sub-grades. For example, the interest rate on a B1 loan dropped from 9.17% to 8.67%. A year ago it was 9.99%. Keeping in mind that fees and defaults shrink the net yield, this makes it more challenging to earn a reasonable return to compensate for the risks involved.

Also, Lending Club data format (and API) changes seem to be happening every month. This is disruptive. For those of us who automate, the database schema must be updated, software repaired, credit models recreated, etc.

I personally plan to put my Lending Club portfolio into runoff mode for now, and to not buy any new notes for the next few months until things settle down and I can see how the dust settles.

Harlan, I noticed the drop in rates as well. The average interest rate and the average return to investors continues to fall. So, with that and the reduced transparency I think you will not be alone in keeping your money on the sidelines for now.

As a less sophisticated retail investor, who continues to use the CSV files for the majority of my decision making (though I do outsource some of my loan purchasing to LendingRobot currently to get those loans I couldn’t get otherwise), I noticed recently I can’t even see credit score changes unless I click on each loan now. I can’t make decisions anymore about whether or not to sell notes if I feel the borrow is near default without a lot of tedious work (though it only takes me 7-10 minutes to examine 2 weeks worth of notes, it’s a lot slower than seeing it all at once).

As for losing credit attributes, a lot of these credit attributes were added later anyway, so going back to what it was doesn’t affect me too much as my models still work on the older filters and those were pretty accurate for me. My biggest ones are Public Record, purpose, Payment/Income ratio (a calculation), open lines, history length, city and total accounts. I think those are all staying?

But overall, my quality of experience has been degrading and I’m considering how much more I want to invest in LC before I start stock piling cash for something else instead.

I was going to use it too actually, but with loans disappearing so fast I could no longer do my Excel manual investing. Now that I’m back at it a little bit to pick up stray loans, I’ve noticed the City is missing. That is critical as I don’t want to invest in

I’m a long time investor in Lending Club and as someone who relies on 3rd party developers and advanced filter to gain a slight edge on “blind” investor, this is very unwelcome news. The average returns reported by Lending aren’t particularly attractive to sophisticated investors who have access to a wide array of asset classes, etc, so without any edge I will divert fund out of Lending Club if warranted. I suspect many institutional investors who have driven much of Lending Clubs growth will eventually come to the same conclusion. This may seem like a smart move of competitive grounds, but I think Lending Club risks “cutting off it’s nose to spite its face” if loan demand slows. I think Prosper’s Ron Stuber is spot on with recent comments about the need to keep little guys in the game to make P2P sustainable over credit cycles. Let’s hope Lending Club keeps this in mind.

Right now Lending Club is awash in investor demand so any changes they make will have little impact on this side of the business. But as you point out, it will not always be that way and it behooves Lending Club to keep that in mind.

Peter, Bully to you for taking a strong stand on this. When someone has a track record of complaining about everything, they are easy to ignore. You, on the other hand, have been a booster, so when you stand up and say, “this isn’t right”, LC should take notice. Thank you!

But I have also heard the Lending Club management talk about how sophisticated their model is now and how difficult it would be for any startup to create something similar from scratch.

Of course they want everyone to think its sophisticated. But when you release all the variables to a model, the model results, and release the results thousands of times a day. I don’t think it wouldn’t be too difficult to reverse engineer.

Thanks Rawraw. As I said I have spoken with several competitors who have either based their model on LC data or validated it with this data. So, this may change may help thwart that – it is really the only valid reason to do something like this in my opinion.

Peter, as the IPO draws ever nearer and Lending Club is changing its parameters. I am having second thoughts about jumping in. I have been saving money for over a year to put into this. Now, I am thinking about putting that money into my Prosper account. This is difficult for me, I have been touting LC to all my friends and family for the last 3 years. I really don’t like this new Wall Street mentality.

Ben, Investing in any IPO is a speculative endeavor and should not be undertaken with money that you can’t afford to lose in my opinion. While I think LC will have a successful IPO and prove to be a solid stock for the long term investor there are too many uncertainties to make that prediction with any certainty.

I am still very bullish on Lending Club but I think we will continue to see more “Wall Street mentality” as you put it from them going forward.

Does no one see the irony in calling this a “Wall Street mentality”? Wall Street is all about 3rd parties / intermediaries adding layers of fees and analytics between an investment and an investor–usually a high net worth investor–so that the intermediary can profit. I’m not saying this is always a bad thing, I have friends on Wall Street who are great people and I’m happy for them. The point I’m making is that this change in data fields does not impact the average retail investor on “Main Street”, it mostly impacts 3rd parties who would like to be brokers, analysts, and fund managers of the LC investment. Therefore, it’s strange to see this as justified indignation against “Wall Street”. Again, I appreciate what you all are doing, but I don’t think you can claim to be a voice for the average investor in this case.

Viewing this change in isolation, I think you are partly right. But when I mentioned the Wall Street mentality, I was thinking about this change in context of all the recent changes. It’s been a steady drip-drip-drip of changes that entail investors receiving less and being charged more. Perhaps it is not so much a Wall Street mentality as it is just a bad business practice. LC is juggling several competing interests in a rapidly evolving and competitive environment, and I have some sympathy for that, but their recent changes seem neither innovative nor inspiring.

As with yourself Peter, most of the previous changes have been easy to explain away. This, this is no longer quite so simple. While I understand the need to protect their business interests, the lack of communication and respect for those who helped bring them to the forefront of an industry is appalling. As Chris said above, I wonder how Orchard is handling this? I’m also curious as to what Lending Club has to say about their employees referring those with questions about legitimacy to third party sites, yet fail to continue to supply those sites with the basic information needed to function.

Like you tell your kids, the cover-up will be more costly than the original mistake. Here, losing the visibility hurts, but it is the method in which it was taken that really stings.

So all in all, disappointment is my predominant reaction, and for all of us who shared publicly the immensely positive and financially rewarding experience of investing with Lending Club, those experiences feel a bit tainted.

Don’t you think asking Lending Club to “become more of a collaborative player here and think of themselves as a part of a broader ecosystem” is sort of akin to asking a politician to do what’s best for the people he or she serves rather than make life easier for their financial backers at the expense of everyone else?

Peter,
I am very new to this game, enjoying it a lot.
Question,
I got an email from NSR about the back testing being reduced from 100 items to 56,
Understand that, but will LC remove those filters from their site, for example one of my preferred filters is set to 0 the public records, we can no longer back test for that but can we continue to filter for that when selecting notes on LC?
Thx
Paul

Paul, Any filter that is available on the website is staying. For public records, this filter is staying (pub_rec in the download), there is the additional filter: pub_rec_bankruptcies that is being removed. We will now no longer know if the public record is specifically for a bankruptcy. They can also be for tax liens, foreclosures or any public document issued by the courts.

I agree with the general thoughts here that less transparency is bad. The whole precedent here is bad. I just stopped automatic bank transfers into my account until I have time to review my filters. However, is there a silver lining here that this will force other players to have more differentiated risk modelling approaches? I’d rather be exposed to a variety of underwriting philosophies as an investor. Also, I know some people’s models depend on the lost metrics, but how much predictive power do they lose without these metrics? A lot of these seem like they have correlated variables that Lending Club will continue to expose. Would it make sense for investors to push back (either independently or as a group) on fields we think are very important for transparency/independent verification of appropriate risk pricing? I’m not agreeing with their decision at all, just trying to contextual its impact on investors and analysts. They certainly weren’t releasing all (or even all the most predictive) underwriting factors to begin with. Regardless, it seems clear, especially with the abruptness and unilateral nature of their decision, that they aren’t going to give it all back. However, it may be that there can be a happy (less sad?) medium where they expose a handful of the fields they’ve taken away and add them for everyone. Thoughts?

I think a lot of this is LC is trying to push their own “Automatic Investing”, over the 3rd parties….

LC could probably put the 3rd parties out of business if they’d give the users what they want … and taking away our ability for more sophisticated data analysis is the opposite of what we want.

Case in point, the 3rd parties offer two distinct advantages over what LC offers, when it comes to note selecation. First, they offer more advanced filtering. The two I’ve used, Peer Lending Server and Interest Radar offer — in addition to dozens of filters not available on LC — custom filters, where a mathematical relationship between two different pieces of data can be determined. One of the most useful filters in my opinion is (Installment / monthly income) — what percentage of their monthly income is the borrower committing to paying you back. Even though the usefulness of that filter has been talked about for years on these forums, it’s never been added. Personally, I’d like to see LC create a “write your own filter” option, where advanced users can write their own filters in an SQL type statements, for example, from the full of set of data LC keeps.

The second thing that 3rd parties offer is a second opinion. Both of the 3rd parties I mentioned above offered additional filters based on their own credit models, which can use to confirm or reject notes from your own filters.

So, for example, I could create my own filter based on LC criteria, then confirm my selections by setting some minimum standard the note must pass using the 3rd parties credit model. This has worked out quite well for me, so far.

LC should be embracing the diverse goals and ideas of their users. As others have joking mentioned above, it does seem that LC is heading in a direction where they would just rather you pick A, B, C, D, E, F, or G, and be happy with whatever you get.

No one has mentioned the implications of releasing all that data can have outside of the core investing concept. The information, specific to a single borrower, can be combined with other data sources to uniquely identify a particular borrower. As someone who works in the data sciences, I am thinking this change is less about the platform and its investors and more about the information itself. There are privacy issues at stake as well that should be accounted for. It is very likely that someone found a way to aggregate the LC data with other public sources and identify specific borrowers, hence the sudden change.

Netflix and AOL both experienced similar issues with competitions they put forth in the past. Each time the data was leveraged to violate privacy. LC doesn’t want to be in that boat, especially with all the attention it will be getting soon.

Great article, but I don’t believe LC investors are doomed. The data fields that were removed were mostly insignificant and at least in our fund, it has no material effect on the demonstrable alpha that we provide. The most important data elements are still available. Knowing the industry and the leaders in this space very well, it my educated guess that they made the move in preparation for the upcoming IPO as other newer platforms are trying to copycat their processes.

If this is indeed the beginning of a trend of less transparency for Lending Club, then the free market will sort it out as money always flows to where it’s treated best. Hence, in future years if firms like Prosper or Funding Circle are more transparent and/or providing better service, then perhaps they will become tomorrow’s industry leader.

Trackbacks

[…] most recent change, they removed almost half of the data points. You can read more about it on Lend Academy’s post. Borrower privacy I can understand, reduced transparency I can’t. (I was happy to find […]

The Lend Academy Podcast

Archives

About Lend Academy

Lend Academy has been bringing you all the news and information about peer to peer lending since 2010. Founded by Peter Renton, Lend Academy not only has the most active news site, but also the largest online forum and the first and most popular podcast in the industry.

The Lend Academy team loves peer to peer lending and our staff have all invested their own personal money in one or more of the platforms. Lend Academy Media is part of Cardinal Rose Group which also owns LendIt, the leading industry conference, and has a majority interest in NSR Invest.